Applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, changes in accounting policies are generally applied retrospectively—by restating information for prior years as if the new accounting policy had always been applied. That approach of (full) retrospective application is overridden: IAS 8 makes it look as though full retrospective application is the default… Continue reading Changing accounting policies: when retrospective is not best
Tag: Tax
Deferred tax on intragroup inventory transfers
One case when IAS 12 Income Taxes requires companies to recognise a deferred tax asset is on unrealised intragroup profits on inventory. This arises when: Recognising this deferred tax asset is uncontroversial if the buying company and selling company are taxed at the same rate, but views are more mixed if rates differ. IAS 12… Continue reading Deferred tax on intragroup inventory transfers
We exclude many sales taxes from revenue. Is that the best approach?
For many years, it has been common practice for companies to report revenue that excludes many types of VAT (value added tax) or of sales tax. This practice continues under IFRS 15 Revenue from Contracts with Customers. IFRS 15 defines the transaction price (used as a basis for reporting revenue) as excluding ‘amounts collected on… Continue reading We exclude many sales taxes from revenue. Is that the best approach?
Buying an asset that comes with deferred tax
IAS 12 Income Taxes generally prohibits companies from recognising a deferred tax liability (or deferred tax asset) at the time when they buy an asset separately. I discuss below: I conclude that the initial recognition exception in IAS 12 applies too widely. Sometimes, a company acquires not just an underlying asset (or liability), but also… Continue reading Buying an asset that comes with deferred tax
Unexpected prediction
IFRS 15 Revenue from Contracts with Customers discusses 2 methods of estimating the amount of variable consideration. Those estimates are used in calculating the transaction price for contracts with customers. Unfortunately, the discussion is not totally clear because the wording is a compromise between proponents of the 2 methods. I discuss below: Estimating variable consideration… Continue reading Unexpected prediction
Myths about deferred tax
There are many myths about what deferred tax is. As a result, many companies do not understand what information about deferred tax can tell investors. Thus, companies typically present that information in a technical way that investors find difficult to understand. Consequently, most investors dismiss that information as an uninteresting technicality and they ignore it.… Continue reading Myths about deferred tax
IASC’s project on discounting
The International Accounting Standards Committee (IASC) added to its work plan a project on discounting (or present value) in 1998. IASC was the predecessor of the International Accounting Standards Board (the IASB). When the IASB came into being in 2001 and took over from IASC, the IASB decided not to continue with the project. In… Continue reading IASC’s project on discounting
Why it’s hard to measure deferred tax on investments in subsidiaries
IAS 12 Income Taxes prohibits recognition of most of those deferred tax liabilities (and deferred tax assets) resulting from investments in subsidiaries. This post examines why that prohibition exists. In summary, when that prohibition applies, the parent has a deferred tax liability (or deferred tax asset). The parent must disclose the underlying ‘temporary difference’. But… Continue reading Why it’s hard to measure deferred tax on investments in subsidiaries
Saying how likely something is: research methodology
In a separate post today, I summarised research by the Korea Accounting Standards Board (KASB) and Australian Accounting Standards Board (AASB). That research looked into how preparers of financial statements and auditors interpret various terms used in IFRS Standards to denote how likely an event is. https://accountingmiscellany.com/saying-how-likely-something-is In this post, I comment on 2 aspects… Continue reading Saying how likely something is: research methodology
Emission trading schemes: a fresh look
The most difficult question in accounting for emission trading schemes is deciding what to do with emission trading certificates received free of charge. Does the recipient have a liability on day 1? If not, should it recognise an immediate gain? Previous answers to this question have been unconvincing because they did not reflect the nature… Continue reading Emission trading schemes: a fresh look